National Income Accounting Explained

Including Intro to Balance of Payments

Here is a brief tutorial to aid newbie economists understand the constructs behind national income accounting and balance of payments (the two are related). To do so we’ll introduce the two measures of national income which most of you are familiar with: GDP (gross domestic product) and GNP (gross national product).

Gross Domestic Product (GDP): the total value of all FINAL goods and services produced in an economy (country) domestically in a given time period.

Gross National Product (GNP): the total value of all FINAL goods and services (G&S) produced by a countries factors of production (including labour) in a given time period.

Here is a calculation to help.

GNP = GDP + G&S produced by country's factors of production abroad - G&S produced by foreigners domestically.

if CA = 0, exports = imports and a trade balance exists.
if CA > 0, EX>IM (imports), trade surplus exists.
if CA < 0, EX
While on the subject, we mind as well discuss National Income and National Product.